Ties That Bind; Crony Capitalism Is Stunting Southeast Asia, Says the Author of a New Book on the Region's Godfathers
Studwell, Joe, Newsweek International
Byline: Joe Studwell (Studwell is the author of "Asian Godfathers: Money and Power in Hong Kong and South-East Asia.")
A couple of years ago I was fortunate enough to have dinner with Bob Zoellick, the wise American who now heads the World Bank. The conversation turned to Southeast Asia, a region Zoellick knows intimately, and about which I had recently agreed to write a book. In the wake of the 1997 financial crisis, Southeast Asia had been overtaken by China and India as the darlings of developmental economists and multinational business, yet I was optimistic. Zoellick listened quietly as I conjured up images of how the crisis could inspire a cathartic transition from crony capitalism to a market free of manipulation by bureaucrats and politicians. When I was finished, Zoellick looked across the table and said simply: "I am afraid that you may find that is not the case."
He was right, as three years of research have revealed. The architecture of the Southeast Asian economy remains what it was 10 and 50 and 100 years ago. The domestic economies of Hong Kong, Singapore, Thailand, Malaysia, Indonesia and the Philippines are all still dominated by reclusive, enigmatic billionaires and their families, even if fewer of them rank among the richest people in the world. In 1996 no less than eight of the top two dozen billionaires on the Forbes global rich list were Southeast Asian; in 2006 only Hong Kong's Li Ka-shing, with a net worth of US$18.8 billion, ranked in the top 24. Nonetheless, while some Southeast Asian tycoons have been overtaken by more entrepreneurial billionaires from other parts of the world, the region remains the global epicenter of rentier family business.
This sits heavily with ordinary citizens. To the extent Southeast Asia has succeeded, it has done so despite the influence of the tycoons. For 40 years the growth of gross domestic product and the creation of jobs in the region have moved in lock step with the expansion of exports, produced either directly by multinational corporations or under contract by small-scale local manufacturers. The billionaires avoid export manufacturing and its requirement for global competitiveness. Instead they prosper from concessions, monopolies and cartels in local service economies that define things like port handling, real estate, telecommunications and gaming.
A decade after the Asian crisis, Southeast Asia's billionaires remain in the ascendancy because promised deregulation has never bitten. Even Hong Kong-- lauded by the Heritage Foundation as the world's freest economy (de facto cartels affect the port to supermarkets to electricity to cement) --has failed to pass the kind of antimonopoly statutes that are a central pillar of developed economies around the world. There has been no substantive progress on creating a common free market in services for the members of the Association of Southeast Asian Nations, despite relentless rhetoric. ASEAN is a toothless tiger, with no mechanism for enforcement of rulings, in a jungle of petty vested interests. Unlike the European Union, there are no regional or global brand-name corporations with the capacity to originate new services and technologies. There are simply local billionaires, lionized by domestic media, but running businesses whose productivity is regularly shown by economists to lag both that of Southeast Asian manufacturing and global enterprise in general. Why else, as once example, would container-handling charges at Hong Kong's port be more than twice those in Germany?
Despite now bullish stock markets in the region, the billionaires--with their lousy corporate governance and manipulation of local banks to provide cheap and easy alternative sources of credit--also have contributed to the worst long-term emerging-market-equity performance in the world. From 1993--when the first significant international portfolio investments came into Southeast Asian bourses--to the end of 2006, total dollar returns with dividends reinvested in Thailand and the Philippines were actually negative. …